Southern Company Annual Meeting @ SO 2016-05-25

Road trip to Callaway Gardens for the annual question time with Tom Fanning,
questions provided by environmentalists and Southern Company (SO) stockholders from at least four states.

This figure from page ii of the meeting Notice illustrates both the problem and the solution for Southern Company.
Natural gas has replaced coal as SO’s top energy source, and Nuclear is still
in there.
But renewables are up to 4%.
And over on the right of the same page:

Growth in Renewables
Approximately 3,800 megawatts of announced
or added renewable capacity since 2012. This
includes the development of what is expected to
be the largest voluntary solar portfolio in the U.S.
(at Georgia Power Company).

Interesting use of “voluntary”, but never mind that.
If SO keeps that up, it will
be more than doubling its solar capacity
every two years, faster than the national average.
And that 4% will in less than ten years become the majority energy source.

Whereas:

The 2014 Intergovernmental Panel on Climate Change (IPCC) Synthesis
Report warns that global warming will have “severe, pervasive
and irreversible impacts for people and ecosystems.” The costs
of failing to address climate change are significant and are
estimated to have an average value at risk of $4.2 trillion
globally. To mitigate the worst impacts of climate change and limit
warming to below 2 degrees Centigrade (2°C), as agreed in the
Cancun Agreement, the IPCC estimates that a fifty percent reduction
in greenhouse gas (GHG) emissions globally is needed by 2050,
relative to 1990 levels.

The Southern Company has had a proactive response toward the
low-carbon transition by adding more than 3,600 MW of renewable
projects since 2012, developing ‘clean coal’ technology, adding
nuclear energy generation, and making the first offer by a utility
for investment-grade Green Bonds valued at $1 billion.

However, accelerated efforts are necessary: Southern is the third
largest Carbon Dioxide (C0 2 ) emitter in the country and ranked
26th out of 32 utility companies for Energy Efficiency Savings in a
benchmarking report produced by Ceres in 2014.

Regulatory and technology changes are underway that will profoundly
impact the utility business model. The U.S. Environmental Protection
Agency (EPA) recently finalized the Clean Power Plan, requiring
states to achieve 32% GHG reductions on average nationwide (from
2005 levels). Yet the International Energy Agency (lEA) 2°C
Scenario requires a 90% reduction of global average carbon intensity
of electricity production by 2050, necessitating significant action
beyond the Clean Power Plan. Meanwhile, developments in new
technologies are leading to sharply declining costs, increasing
competitiveness of renewable energy generation and storage.

Rates must be designed for maximum flexibility to achieve climate
objectives while providing just and universal access to electricity
services, including affordable services to low-income customers.

Recognizing the unique constraints on innovation for the low-carbon
transition in each regulated market, Southern’s subsidiary companies
can demonstrate a willingness to work with regulators to develop
frameworks to catalyze the low-carbon transition. In Minnesota,
utilities, rate-payers, and regulators are collaborating to map the
transition to a regulatory model that enables innovation, customer
options, and realizes public policy goals.

Proponents offer this supportive but stretching resolution to urge
Southern to position itself to thrive for the long-term in a
decarbonized energy sector.

RESOLVED: Shareholders request that Southern Company issue a report
by November 30, 2016, at reasonable cost and omitting proprietary
information, on Southern’s strategy for aligning business operations
with the IEA 2°C scenario, while maintaining the provision of safe,
affordable, reliable energy.

Information on aligning incentives, research and
development, public policy positions, engagement strategy
with state regulators, and board governance with Southern’s
business plan compatible with this strategy.

The Board’s Statement of Opposition basically says both they’re already doing that and they don’t need to do that.

REPORT QUANTIFYING POTENTIAL FINANCIAL LOSSES TO THE
COMPANY ASSOCIATED WITH STRANDING OF COAL ASSETS

Whereas:

The Southeast’s economic growth “is at risk from unchecked
climate change, which could render this region— already one of
the hottest and most weather vulnerable of the country— at
significant economic risk.” (Risky Business, 2015).

Because coal causes 77% of U.S. energy related emissions,
regulations designed to halt or mitigate climate change will likely
target coal. (EPA, Electricity Sector Emissions, 2014). This may
lead to stranding— premature write downs, or devaluations of
coal assets. For instance, in 2015, the U.S. finalized the Clean
Power Plan, which requires the electric power sector to
significantly reduce carbon emissions. HSBC noted that the rules
could “increase the stranding risk for U.S. coal producers and
coal heavy utilities.” Coal fired utilities claimed that the
regulations will “result in billions of dollars in stranded
assets.” (Comment to EPA from Coalition for Innovative Climate
Solutions).

In contrast to peers, Southern Company is making big bets on carbon
capture and storage (“CCS”) and coal gasification, with
the hope of trapping carbon pollution and storing it indefinitely,
similar to nuclear waste. However, there is tremendous controversy
and conflicting data on whether CCS works, is cost effective, and
can overcome high water requirements, and other challenges. Coal
gasification attempts to reduce coal’s carbon intensity by
converting coal to gas, then burning it. Coal gasification is not
widely employed because natural gas is a less expensive alternative
that achieves similar carbon savings. Southern Company’s Kemper coal
gasification plant is nearly $4 billion dollars over-budget and two
years delayed, resulting in Southern’s subsidiary, Mississippi
Power, having its credit downgraded. Mississippi has also not
committed to full cost recovery for Kemper, and the state Supreme
Court refunded Kemper-related costs to customers.

Southern’s emphasis on CCS and coal gasification constitute a gamble
that may increase, rather than reduce, its carbon asset risk.
Southern’s focus on these technologies discourages the Company from
shuttering or converting coal plants, exposing investors to billions
of dollars of risk due to uncertainty about technical viability and
cost effectiveness. Kemper has already resulted in millions of
dollars of losses being born by shareholders.

THEREFORE BE IT RESOLVED:

Shareholders request that Southern Company prepare a report by
September 2016, omitting proprietary information and at reasonable
cost, quantifying potential financial losses to the company
associated with stranding of its coal assets under a range of
scenarios for climate change driven regulations that mandate
greenhouse gas reductions beyond those required by the Clean Power
Plan. Such report should include possible financial losses if coal
gasification and/or CCS is rejected by policymakers as a technical
climate mitigation strategy, or if they cannot be cost effectively
implemented. Shareholders also request that Southern disclose, in
the report, its total investments in CCS and coal gasification
technologies.

I’ll quote this first point from the Board’s rebuttal:

Preparing a report on the financial impact to
the Company of regulations that would require
GHG reduction beyond the Clean Power Plan is
impractical, given the significant uncertainty around
the content, timing, and stringency of rules that
have not yet been proposed. Additional uncertainty
results from the potential impact of future regulatory
decisions on the Southern Company system’s
proposed asset retirements and related cost
recovery. As a result, any conclusions in such a
report, if prepared, would be so speculative as to be
of little value to investors.

So SO admits it doesn’t know that Kemper Coal will actually work.
What say we call off Kemper Coal and the Plant Vogtle nuke boondoggle
and get on with solar power?